A Report for Taxation 1 (Professor Laforteza)

Ann Margaret Lorenzo

THE CASE THUS FAR:
District Court:
Individual Mandate cannot be severed from whole Act so law
in its entirety is struck down.
Eleventh Circuit Court
Individual Mandate exceeds Congress power.
Not a tax so could not be justified under taxing power.

Several Court of Appeals have heard challenges to this
law, with 25 (or 26) States joining the suit to question
laws constitutionality.


A 100-word explanation
In order for Congress to pass a law, it must rely on a specific
clause of the Constitution. That way, states have areas in which
they have the exclusive ability to legislate.

The Obama Administration first argued that Obamacare was valid
as a regulation of commerce. The Supreme Court rejected that
argument because Obamacare regulates inactivity (not having
insurance).

The administration also argued that the law does not make failing
to purchase health insurance a crime. Instead, the law requires
those who do not buy insurance to pay a tax. The Supreme Court
accepted that argument. So, Obamacare is constitutional.

From: http://morethantwentycents.wordpress.com/2012/06/28/100-word-explanation-of-obamacare-
decision/
The Context
Obama wants to make health care available to
more people.

Pre-Obamacare, only certain groups were covered
by the Medicaid funds from the Federal
Government, i.e. pregnant women; people over
65, disabled, poor
The State Experience
Failures
Kentucky
New York
Enacted guaranteed-issue and community-rating laws
without requiring universal acquisition of insurance
Result: DISASTER. Skyrocketing insurance premiums-
reduced individuals covered- insurance companies closed.

Massachusetts
In fact, in 2009, Massachusetts emergency rooms served
thousands of uninsured, out-of-state residents.
Influx of unhealthy individuals into a State with universal health
care would result in increased spending on medical care
service.

REMEMBER:
Congress power to legislate is not plenary; It is
limited by Article I Section 8, enumerating the
permissible subjects of legislation of the National
Congress

The remaining subjects not so named were
considered retained by the state governments,
them being considered closer to the governed and
hence, better able to address their needs and
concerns.
The Picture According to Justice
Ginsburg:
Many Americans remain uninsured. Either unwilling or unable to buy
insurance. (2009, 50 Million Americans)

But health-care providers are still mandated to provide health-care even
to those unable to pay. (Hospitals cant refuse patients.) They provide
care but receive no payment. (2008, $43B uncompensated care)

So hospitals raise prices, passing along cost of uncompensated care to
those who pay reliably- government and private insurance companies.

Insurance companies raise premiums. (Estimated family insurance
premiums raised by $1,000 per year)

= FREE RIDE (insured pays for the uninsured)
*even worse, late medical care means more expensive because of late
diagnosis of diseases.

The Picture According to Justice
Ginsburg
States then who undertake health-care reforms on
their own risk placing themselves in an
economically disadvantaged position. Out-of-state
residents seek health-care in their hospitals,
receiving uncompensated health care.

Facing that risk, States are more unlikely to
undertake such reforms on their own.

Hence, the solution presented by the Patient
Protection and Affordable Care Act (Obamacare).
The Picture According to Justice
Ginsburg
Congress devised 3-part solution:

Guaranteed-issue requirement (insurers cant deny
coverage on the ground of persons medical history)

Community-rating price (insurers cant charge higher
premiums to those with preexisting medical conditions)

Individual mandate provision (individuals are mandated
to be insured)

How did Congress ensure state
participation?
If States opt out of the Expanded Medicaid
Program, they lose all previous Medicaid fundings
from the Federal Government.
Eg. If under the old scheme, State A received $10 B to
ensure healthcare coverage to people over 65; poor;
etc.
State A stands, under the new scheme, to receive more
funds from the federal government to cover more people
for healthcare.
If State A refuses to cover more people, it loses not just the
new funds it expects to receive but the previous yearly
allowance for Medicaid it received ($10 B) .
The Questioned Provisions of the
Patient Protection and Affordable Care
Act :
5000A Individual Mandate Provision
Individuals not otherwise exempted must procure
healthcare coverage by 2014, otherwise, they must pay
the penalty ($95 to $965 or 2% of household annual
income)

2001 Expanded Medicaid Funding
States, to receive the new funds and to continue
receiving Medicaid funds from Federal Government,
must agree to participate in program and cover more
people. If they opt out, they lose ALL Medicaid grant.
Governments Position:
Individual Mandate is within power of Congress to
enact under the Commerce Clause.

If the Commerce Power does not support the
mandate, it should still be upheld as an exercise of
the power to tax. The only effect of the mandate is
to raise taxes on those who do not do so, and thus
the law may be upheld as a tax.
The Three Opinions
Main Opinion by Chief Justice Roberts
Individual Mandate is Constitutional (5-4)
Withholding Medicaid Funds is Not Constitutional (7-2)

Separate Opinion of Justice Ginsburg
Both Constitutional; Individual Mandate actually justified
under Commerce Power so no need to justify as tax

Dissenting Opinion of Justices (4)
Whole law unconstitutional
THE VOTE ON THE INDIVIDUAL
MANDATE
Chief Justice Roberts sided with the Liberals
(Justices ) to uphold the constitutionality of the
individual mandate

The Conservatives (Justices Scalia, Kennedy,
Thomas and Alito) dissented, voting to strike down
the provision along with the whole law.

The Votes
The Constitutionality of the Individual Mandate
5-4 in favor of its validity
Although CJ Roberts upheld it on the ground that it was a
tax, not regulation of commerce
Justice Ginsburg was of the opinion that the CJ need not have
resorted to the tax argument since it was a valid exercise of the
National Congress power to regulate commerce

The constitutionality of withdrawing Medicaid
funds
7-2 in favor of its being stricken down for being
unconstitutionally coercive for states

THE CHIEF JUSTICE OPINION
(MAIN)
Holds the Anti-Injunction Act does not bar the
Courts consideration of the case

Holds that the minimum coverage provision
(individual mandate) is not justified under the
Commerce Clause but is justified as tax

Holds that the Spending Clause does not
authorize the compulsion placed on the states to
participate in the Obamacare program of extended
coverage
THE CHIEF JUSTICE OPINION
(MAIN)
Individual Mandate
- The mandate does NOT regulate existing
commercial activity. It instead compels the
individual to become active in commerce by
purchasing a product on the ground that their
failure to do so affects interstate commerce.
- To construe the Commerce power to permit
Congress to regulate individuals DOING
NOTHING would open a potentially vast domain to
congressional authority.
THE CHIEF JUSTICE OPINION
(MAIN)
Individual Mandate
- We have never permitted Congress to
anticipate that activity itself in order to
regulate individuals not currently
engaged in commerce.
*Everyone will likely participate in the food market but that does
not authorize Congress to direct them to purchase particular
products in those markets today. While Government seeks to
persuade the Court by saying its a special product, we find that
cars and broccoli are no more purchased for their own sake
than insurance.
THE CHIEF JUSTICE OPINION
(MAIN)
Individual Mandate
- Government alternatively asks us to read the
mandate not as ordering individuals to buy
insurance, but rather as imposing a tax on
those who do not buy that product.
- Under that theory, the mandate is not a legal
command but just another thing the
Government taxes. If the mandate is in effect
just a tax hike on certain taxpayers who do not
have insurance, it may be within Congress
constitutional power to tax.
THE CHIEF JUSTICE OPINION
(MAIN)
Individual Mandate
- Failure of law to call it a tax does not
make it not so.
- In the case of Drexel Furniture, the so-
called tax was actually a penalty. It was
an exceedingly heavy burden, it
imposed a penalty on employing
underage labor and the tax was
enforced by the DOL instead of
revenue agencies.
THE CHIEF JUSTICE OPINION
(MAIN)
Individual Mandate
- Although there may be concerns that the tax is
imposed for an omission, 3 considerations
allay these concerns.
- Constitution does not guarantee individuals may
avoid taxation by inactivity.
- Congress inability to use its taxing power to
influence conduct is not without limits.
- Although power to tax is greater, than commerce
power, taxing power does not give Congress the
same degree of control over individual behavior.
JUSTICE GINSBERG
OPINION
Agree that the Anti-Injunction Act does not bar the
SCs consideration of the case
Agree that the minimum coverage provisions is a
proper exercise of the Congress taxing power
BUT:
Hold that Commerce Clause authorizes Congress
to enact the minimum coverage provisions
Hold that the Spending Clause permits the
Medicaid expansion exactly as Congress enacted
it.



GINSBURG: THE INDIVIDUAL
MANDATE
CJ Roberts need not have resorted to the tax
argument. Although I agree in the result, because it
was eventually held constitutional, I hold that the
individual mandate is justified under the Commerce
Clause.
Virtually every person residing in the US, sooner or later, will
visit a doctor or other health-care professional.
Uninsured consume large amount of healthcare; their
consumption drives up market prices; foist costs on others
and reduces market efficiency and price stability.
Given that, foregoing insurance is hardly doing nothing but
instead an economic decision
Its regulating commercial activity.
GINSBURG: THE INDIVIDUAL
MANDATE
Congress power to regulate commerce is guided
by 2 principles:
Congress has power to regulate economic activities that
substantially affects interstate commerce
Court owes large measure of respect to Congress when
it enacts economic and social legislations
Court asks only (1) whether Congress had rational basis
for concluding that regulated activity substantially affects
interstate commerce and (2) whether there is reasonable
connection between regulatory means selected and
asserted ends
GINSBURG: THE INDIVIDUAL
MANDATE
To apply test:
Congress has rational basis for concluding
that the uninsured, as a class, substantially
affects interstate commerce.
Uninsured consumption of healthcare;
crossing states to receive better care, etc.

GINSBURG on Chief Justice
Opinion
CJ Roberts holding that the individual mandate
cannot be justified under Commerce Clause
places unnecessary constraints on Congress
Commerce Powers
CJ is saying Congress cant compel people to be active
in commerce by purchasing a product
But it should be seen that what Congress is doing is not
merely forcing people to buy an unwanted product but
to participate in the market that they will eventually
venture in, at one point or another in their lives.
(Everyone will eventually need healthcare)
GINSBURG on Chief Justice
Opinion
It is Congress role, not the Courts, to delineate
the boundaries of the market it seeks to regulate.

CJ defines healthcare market as to include only those
transactions which will occur in the very near future.

Congress couldve reasonably viewed the market from a
long-term perspective. (Again, everyone is bound to
consume healthcare)
GINSBURG on Chief Justice
Opinion
The CJs analogy of the car market to the
healthcare market is simply inapt.
The CJ is saying that the uninsured are not active in the
healthcare market in much the same way that a person
without a car is inactive in the car market.
The uninsured consumes healthcare by getting a free
ride from those who purchase insurance.
The person without a car will have to pay for one to be
able to have one, he will not be given a free one at the
expense of another consumer.

GINSBURG on Chief Justice
Opinion
To uphold the individual mandate as valid exercise
of Congress Commerce Powers is not to give
them unbridled powers
Forcing people to buy broccoli v. forcing them to get
insurance

Judges and lawyers live on the slippery slope of
analogies; they are not supposed to ski it to the bottom.
Dissenting said if individual mandate is sustained,
Congress could make breathing in and out the basis for
federal prescription.
Ginsburg: Congress Spending
Power
CJ holds the exercise of Congress Spending
Power unconstitutionally coercive.
(1) Medicaid Expansion is a new grant program; not an
addition to Medicaid Program.

(2) Expansion was unforeseeable by the States when
they first signed on to Medicaid.

(3) The threatened loss of funding is so large that States
have no real choice but to participate.
Ginsburg: Congress Spending
Power
(1) The Medicaid is one program. States were never
under any illusion that Congress wont amend it. In
fact, Congress has done so many times.

(2) States have no vested right to Medicaid funding. It
is and has always been federal funds just granted to
states to dispose of in a manner that Congress
directs.

(3) States have always received the federal funding
with the understanding that Congress can grant it with
certain conditions.
Ginsburg: Congress Spending
Power
Another thing that militates against the highly
coercive nature of the Medicaid Expansion is the
fact that states can always raise its own revenues
to replace the federal funding it stands to lose by
opting out of the program.

Instead of mandating purchase of insurance and
imposing penalty for failure to do so, the state may
impose a different kind of tax to raise its own
revenues for its own healthcare program.
Ginsburg: Congress Spending
Power
At bottom, the other members of this Court in
effect say that the States reliance on federal funds
limits Congress authority to alter its spending
programs.

ITS BACKWARDS. Congress, not the states, is
tasked with spending federal money in service of
general welfare.
SCALIA, KENNEDY, THOMAS AND
ALITO DISSENTING OPINION
Whether failure to engage in economic activity
(purchase of health insurance) is subject to
regulation under the Commerce Clause.

Whether the congressional power to tax and
spend permits the conditioning of a States
continued receipt of all funds under a massive
state-administered federal welfare program upon
its acceptance of an expansion of that program.
SCALIA, KENNEDY, THOMAS
AND ALITO DISSENTING
OPINION
There is a difference between regulating economic
activity and INACTIVITY. In effect, what is sought to
be regulated is failure to maintain minimum
coverage.

Purchasing insurance is commerce but one does not
regulate commerce that does not exist by compelling
its existence.

Regulate- to adjust by rule, method or established
mode. It can mean to direct the manner of something
but not to direct that something come into being.
SCALIA, KENNEDY, THOMAS AND
ALITO DISSENTING OPINION
With the guaranteed-issue, community-rating and
individual mandate provisions of the new law,
Congress has impressed into service third parties,
healthy individuals who could be but are not
customers of the relevant industry, to offset the
undesirable consequences of the regulation.

If Congress can reach out and command even those
furthest removed from an interstate market to
participate in the market, then the Commerce Clause
becomes a front of unlimited power, the hideous
monster whose devouring jaws spare neither sex
nor age, nor high nor low, nor sacred nor profane.
SCALIA, KENNEDY, THOMAS AND
ALITO DISSENTING OPINION
INDIVIDUAL MANDATE
- Is not justified by the Proper and Necessary Clause
- Is not justified under the Commerce Clause
- Government says healthcare market is one of essentially
universal participation, not taking into consideration that
health care market principally includes of goods and services
that the young people primarily affected by the Mandate do
not purchase.
- If every person comes within the Commerce Clause simply
because he will one day engage in commerce, the idea of
limited government is at an end.
- Is not justified by the Taxing Power
- The government cant have it both ways, calling the
imposition not a tax for the purpose of the Anti-Injunction
Law and a tax for upholding its constitutionality.

SCALIA, KENNEDY, THOMAS AND
ALITO DISSENTING OPINION
The government cannot argue both ways that it is
both a tax and a penalty. The question the court
should answer is not whether Congress had the
power to frame the minimum-coverage provisions
as a tax but whether it did so.

SCALIA, KENNEDY, THOMAS AND
ALITO DISSENTING OPINION
Jurisprudence defines both tax and penalty:
Tax- an enforced contribution to provide for the support
of government.
Penalty- is an exaction imposed by statute as
punishment for an unlawful act.

In a few cases, Court has held a tax imposed upon
private conduct to be so onerous as to be in effect a
penalty. But the reverse has never been so, that we
have held a penalty to be a tax. When a law adopts
the criteria for a wrongdoing and imposes monetary
penalty, it creates a regulatory penalty, not a tax.

SCALIA, KENNEDY, THOMAS AND
ALITO DISSENTING OPINION
Government argues that its a legal obligation with a
tax; if citizens choose to not get healthcare coverage
and instead just pay the tax, they are in compliance
with the law.

The Main Opinion saying the Individual Mandate
merely imposes a tax is not to interpret the statute but
to rewrite it. (Note that nowhere in the 900-page law
did Congress mention tax)
Even if we admit it as tax, we confront another constitutional
issue of whether it is a direct tax that must be apportioned
among the States according to their population.
SCALIA, KENNEDY, THOMAS AND
ALITO DISSENTING OPINION
As to the Medicaid Expansion
- It is obvious from the lack of a back-up scheme by
Congress that they had never imagined a state opting
out of the laws coverage. They knew very well that
the cut in funding that the States would have to
absorb would be more than enough deterrent for
States not to opt out.

- Congress has the power to spend money as it sees fit
(giving dole-out federal funds with certain conditions
attached), but not to coerce states into enforcing
objectives and programs of the federal government.
SCALIA, KENNEDY, THOMAS AND
ALITO DISSENTING OPINION
As to the Medicaid Expansion
- What the Dissent fails to consider is that there is that
heavy pressure on the state to accept the program
because it stands to lose its biggest federal budget
grant.
- Nearly 22% of all state expenditures combined.
- Without the grant from federal government, state
government would be hard-pressed to look for other
revenue-raising measures to support its own previously-
established healthcare system.
- Eg. Arizona gives 12% of its own budget to Medicaid and rely
on federal funding to provide the rest. If Arizona lost federal
funding, it has to commit additional 33% of its state budget to
fund an equivalent program.
SCALIA, KENNEDY, THOMAS AND
ALITO DISSENTING OPINION


One last point: Since it appears from the very
inter-related provisions of the law that it was
created to work as an intricate whole, the striking
down of the Medicaid Expansion provision should
warrant the striking down of the whole law.
POLITICAL
CONSEQUENCES:
The Obama Legacy
v.
The Romney Promise